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Supreme Court of Louisiana
FOR IMMEDIATE NEWS RELEASE FROM: CLERK OF SUPREME COURT OF LOUISIANA NEWS RELEASE #016

The Opinions handed down on the 15th day of March, 2011, are as follows:

BY WEIMER, J.: 2010-C -1598 J-W POWER COMPANY v. STATE OF LOUISIANA THROUGH THE DEPARTMENT OF REVENUE & TAXATION (Parish of E. Baton Rouge) Accordingly, the exception of no right of action was properly overruled by the court of appeal. The decision of the appellate court is affirmed. AFFIRMED. GUIDRY, J., dissents and assigns reasons. CLARK, J., dissents for reasons assigned by Guidry, J.

3/15/11

SUPREME COURT OF LOUISIANA
NO. 2010-C-1598

J-W POWER COMPANY VERSUS STATE OF LOUISIANA THROUGH THE DEPARTMENT OF REVENUE & TAXATION
On Writ of Certiorari to the Court of Appeal, First Circuit, Parish of East Baton Rouge

WEIMER, Justice This matter is before the court for a determination of whether the court of appeal erred in finding that a dealer-collector of sales taxes may serve as an agent for its customers in connection with a demand for the refund of sales taxes paid under protest pursuant to LSA-R.S. 47:1576. For reasons that follow, we find the appellate court was correct in reversing the district court which had dismissed the plaintiff's action on the basis of no right of action. Accordingly, we affirm that portion of the court of appeal's decision from which the writ application was taken. FACTUAL AND PROCEDURAL BACKGROUND1

1

This matter is before the court on an exception raising the objection of no right of action. Notably, evidence is admissible on the trial of an objection of no right of action to "support or controvert any of the objections pleaded, when the grounds thereof do not appear from the petition." See LSA-C.C.P. art. 931. Therefore, much of the factual background in this case was obtained from the pleadings.

J-W Power Company (Power), a Texas corporation, is a provider of gascompression services in the oil and gas industry. As part of its business, Power entered into various full-service agreements with its customers in which Power agreed to provide the gas-compression services, including all labor, equipment, repairs, and maintenance necessary to achieve the customers' goals. J-W Gathering Company (Gathering) and J-W Operating Company (Operating) are customers of Power pursuant to full-service agreements.2 On December 2, 2004, the Louisiana Department of Revenue (Department) issued Revenue Ruling 04-009, which changed the Department's interpretation and application of LSA-R.S. 47:301(14) relative to gas-compression agreements. Pursuant to that ruling, Power's customers owed sales taxes on natural gascompression services provided pursuant to full-service agreements. After the issuance of the Revenue Ruling, Power, as the selling dealer, was required to collect sales taxes from its customers on the full-service agreements and remit those taxes to the Department. In its petition, Power alleged "by letters dated January 20, 2005, J-W [Power] protested the application and payment of the sales tax on the Full Service Agreements pursuant to La. R.S. 47:1576." Those letters identified the sales taxes in question, specifying amounts for December 2004 that had been paid to the state and certain parishes, set forth the basis of the dispute, gave "notice of the payment under protest by or on behalf of J-W" Power, and gave notice of "J-W [Power's] intent to file suit for refund." A second set of letters was sent on February 18, 2005, regarding protested payments made for January 2005.

2

Power and Gathering are individual, wholly-owned subsidiaries of Operating. Neither Power nor Gathering owns any part of the other. 2

On March 14, 2005, Power filed a petition for refund of sales taxes paid under protest pursuant to LSA-R.S. 47:1576. In its petition, Power prayed, in pertinent part, for a judgment declaring that its full-service agreements are nontaxable service agreements under LSA-R.S. 47:301(14) and awarding Power a refund of "all sales tax amounts heretofore and hereafter paid under protest to the State of Louisiana by or on behalf of J-W [Power] pertaining to the Full Service Agreements, with interest as allowed by law." The Department filed an answer on November 28, 2005. Almost three years later, on July 7, 2008, the Department filed an exception of no right of action3 based on the fact that Power was not the taxpayer and was, therefore, not entitled to seek a refund under LSA-R.S. 47:1576. In its memorandum opposing the exception, Power asserted that it was "prosecuting the refund portion of [its] action as the authorized representative of both J-W Gathering Company and J-W Operating Company, as well as the authorized representative of multiple third parties whose Full Service Agreements were eviscerated by Revenue Ruling 04-009." After a hearing, the district court granted the Department's exception but afforded Power the opportunity to amend its petition in order to remove the grounds for the objection. In a supplemental and amending petition filed on May 14, 2009, Power further alleged: J-W Gathering and J-W Operating expressly directed and authorized J-W Power Company to protest the application and payment of the sales taxes on the Full Service Agreements and designated J-W Power Company as their agent in fact for the payment

3

The Department also filed an exception raising the objection of no cause of action, which was denied. 3

under protest and the prosecution of the suit for refund on their behalf. The supplemental and amending petition also disclosed that the sums referred to in the January 20, 2005, and February 18, 2005 letters to the Department included amounts attributable to Gathering and Operating, as well as various third parties. Power declared that it was seeking "to recover all amounts paid under protest for J-W Power Company, J-W Gathering, and J-W Operating in the principal amount of $1,002,081.92 through March 2009, and all amounts hereafter paid by J-W Power Company under protest." Furthermore, Power alleged that "J-W Power Company, for itself and its principals, J-W Gathering and J-W Operating, hereby waives, releases and withdraws its protest of the amounts attributable to third parties ... and does not intend to prosecute this action for refund as it relates to the non-affiliated third parties." In its amended pleading, Power sought a judgment "[r]efunding to J-W Power Company, on behalf of its principals, J-W Gathering and J-W Operating, all sales tax amounts heretofore and hereafter paid under protest to the State of Louisiana by or on behalf of J-W Power Company, J-W Gathering and J-W Operating pertaining to the Full Service Agreements." Attached to the supplemental and amending petition was a spreadsheet detailing the amounts paid under protest, the period covered by the protest payment, the amounts paid by Power on behalf of Gathering and Operating, and the total amounts paid for unaffiliated third parties. Also on May 14, 2009, Gathering and Operating filed a petition for intervention, alleging they "expressly directed and authorized J-W Power Company to protest the application and payment of the sales taxes on the Full Service Agreements and designated J-W Power Company as their agent in fact for

4

the payment under protest and the prosecution of the suit for refund on their behalf." They further alleged: beginning on January 20, 2005, J-W Power Company protested the application and payment of the sales tax on the Full Service Agreements pursuant to La. R.S. 47:1576 for its Louisiana Full Service Agreement customers, including specifically, J-W Operating and J-W Gathering. In each and every instance, J-W Power Company was authorized by and on behalf of J-W Gathering and J-W Operating to pursue such action for and on their respective behalf as their authorized agent. Those protest letters specifically identified the sales tax amounts disputed, set forth the basis of the dispute and gave notice of J-W Power Company's intent to file suit for refund. Moreover, Gathering and Operating acknowledged that they are bound by the actions that Power performed in the capacity of their duly authorized agent. They added: Pursuant to Louisiana Code of Civil Procedure article 694, J-W Gathering and J-W Operating specifically authorized J-W Power Company to act for and on their behalf as their agent and J-W Power Company in fact acted for and on their behalf in all actions taken in connection with the payment under protest of the disputed sales taxes and in the pursuit of the recovery of those amounts in this suit. Pursuant to governing law, including Code of Civil Procedure article 694, J-W Gathering and J-W Operating, as the principals, have been and are considered the plaintiff herein. In their intervention, they prayed for a judgment "[r]efunding to J-W Gathering and J-W Operating all sales tax amounts heretofore and hereafter paid under protest to the State of Louisiana by or on behalf of J-W Power Company, J-W Gathering and J-W Operating pertaining to the Full Service Agreements." The Department followed with another exception of no right of action, urging that the amendments to Power's petition did not remove the grounds for the objection as no authority under the tax laws enables Power to act as the agent for its customers, Gathering and Operating, in the giving of notice of the intention to file suit for the recovery of taxes paid under protest or the filing of such a suit.

5

The Department also opposed the petition for intervention, urging that Gathering and Operating did not have any right to enforce in the suit for recovery of taxes paid under protest because neither entity had fulfilled the statutory prerequisites of LSA-R.S. 47:1576,4 pertaining to the remittance of tax under protest and suits to recover protested taxes. After a hearing on the Department's exception and its objection to the petition for intervention, the district court observed that the issues remained unchanged, i.e., the amendment to the pleadings did not remove the ground for the objection; therefore, the district court sustained the Department's exception and dismissed Power's suit with prejudice. By separate judgment, the district court denied the petition for intervention. Power, Gathering, and Operating appealed both judgments, assigning as error the following determinations by the district court: Gathering and Operating could not designate Power as agent for purposes of protesting the tax payments; Power, Gathering, and Operating are not entitled to declaratory relief;5 and Gathering and Operating could not intervene in the suit. In reviewing the matter, the appellate court observed that at the time the taxes were paid to the Department, Power advised the Department by letter that the payment was made under protest. The Department was advised of a forthcoming suit, which was subsequently filed. Based on these facts, the appellate court found that Power satisfied the prerequisites of LSA-R.S. 47:1576: the payments had been

4

Quoted infra.
5

In the original petition, Power prayed for a declaration that the new revenue ruling and its interpretation of LSA-R.S. 47:301(14) as applied to natural gas compressors and natural gascompression services be rejected. Because Power's suit was dismissed pursuant to the Department's exception, the issue of declaratory relief was never addressed. 6

made; notice was given to the Department that the payments were protested; and the suit against the proper party was filed. According to the appellate court, the fact that Power had not disclosed its agency relationship with Gathering and Operating when performing these acts did not preclude Power from asserting the agency relationship at a later date. Finding that Power had proven the existence of such a relation at the hearing on the Department's exception,6 the appellate court concluded that "[t]here is no rational basis to refuse to allow a party to sue through an agent, even in a tax refund case, so long as the agent successfully complies with the statute so as to trigger the Department's requirement to escrow the disputed funds." J-W Power Company v. State of Louisiana through the Secretary of the Department of Revenue & Taxation, 09-2330, p. 9 (La.App. 1 Cir. 6/11/10), 40 So.3d 1214, 1219. The appellate court pretermitted the issue of declaratory relief and declined to consider the denial of Gathering and Operating's petition for intervention since they had not appealed that judgment, noting, however, that an intervention was not necessary since Power had a right of action. Accordingly, the appellate court reversed the district court's judgment, which had sustained the Department's exception and dismissed Power's suit, and remanded the matter to the district court for further proceedings. We granted the Department's writ application assigning as error the appellate court's finding that LSA-C.C.P. art. 694 authorizes an agent to fulfill the procedural requirements of LSA-R.S. 47:1576 on behalf of its principals. J-W Power Company v. State of Louisiana through the Secretary of the Department of Revenue & Taxation, 10-1598 (La. 10/29/10), 48 So.3d 1099.
6

See LSA-C.C.P. art. 700 (quoted infra), which addresses the authority of a plaintiff suing in a representative capacity. 7

DISCUSSION "The function of an exception of no right of action is to determine whether the plaintiff belongs to the class of persons to whom the law grants the cause of action asserted in the suit." Reese v. State, Dept. of Public Safety & Corrections, 03-1615, pp. 2-3 (La. 2/20/04), 866 So.2d 244, 246. See LSAC.C.P. art. 927. In examining an exception of no right of action, a court should focus on whether the particular plaintiff has a right to bring the suit while assuming that the petition states a valid cause of action for some person. Reese, 03-1615 at 3, 866 So.2d at 246. The exception of no right of action questions whether the plaintiff in the particular case is a member of the class of persons that has a legal interest in the subject matter of the litigation. Id. Evidence is admissible on the trial of an exception of no right of action to "support or controvert any of the objections pleaded, when the grounds thereof do not appear from the petition." LSA-C.C.P. art. 931. Concerning the treatment of sales and use taxes by a dealer, LSA-R.S. 47:304 provides: A. The tax levied in this Chapter shall be collected by the dealer from the purchaser or consumer . . . . .... C. Dealers shall, as far as practicable, add the amount of the tax imposed under this chapter in conformity with the schedule or schedules to be prescribed by the collector pursuant to authority conferred herein, to the sale price or charge, which shall be a debt from the purchaser or consumer to the dealer, until paid, and shall be recoverable at law in the same manner as other debts. Any dealer who neglects, fails or refuses to collect the tax herein provided, shall be liable for and pay the tax himself. ....

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E. Any dealer who fails, neglects, or refuses to collect the tax herein provided, either by himself or through his agents or employees, shall, in addition to the penalty of being liable for and paying the tax himself, be fined not more than one hundred dollars, or imprisoned for not more than three months, or both. .... For the purpose of collecting and remitting sales and use taxes to the state, the dealer is the agent of the state. See LSA-R.S. 47:306(A)(5). Concerning the remittance of taxes under protest, LSA-R.S. 47:1576,7 at all relevant times, provided, in pertinent part: A. (1)(a) Except as otherwise provided in Subsection B of this Section, any taxpayer protesting the payment of any amount found due by the secretary of the Department of Revenue, or the enforcement of any provision of the tax laws in relation thereto, shall remit to the Department of Revenue the amount due and at that time shall give notice of intention to file suit for the recovery of such tax. (b) In the case of sales or use taxes that are required to be collected and remitted by a selling dealer as provided for in R.S. 47:304, the purchaser, in order to avail himself of the alternative remedy provided by this Section, shall remit protested sales or use tax to the selling dealer, and shall retain copies of documentation evidencing the amount of the sales or use tax paid to the dealer on the transactions. On or before the twentieth day of the month following the month of the transactions on which the selling dealer charged the tax, the purchaser shall inform the department by certified mail or other reasonable means of the dates and amounts of the protested taxes that were charged by the selling dealer, and shall give notice of the purchaser's intention to file suit for recovery of the tax. (2) Upon receipt of this notice, the amount remitted to the Department of Revenue or the amount of protested taxes that have been paid to the selling dealer shall be placed in an escrow account and held by the secretary or his duly authorized representative for a period of thirty days. If suit is filed for recovery of the tax within the thirty-day period, the funds in the escrow account shall be further held pending the outcome of the suit.

7

LSA-R.S. 47:1576 is found in Chapter 18, of Subtitle II, titled "Provisions Relating to Taxes Collected and Administered by the Collector of Revenue," which comprises LSA-R.S. 47:1501 through 1691. 9

(3) If the taxpayer prevails, the secretary shall refund the amount to the claimant, with interest at the rate established pursuant to R.S. 13:4202(B) from the date the funds were received by the Department of Revenue or the due date, determined without regard to extensions, of the tax return, whichever is later, to the date of such refund. Payments of interest authorized by this Section shall be made from funds derived from current collections of the tax to be refunded. .... At the heart of this case is Subsection (A)(1)(b) that was added in 1999 to clarify the nature of the action for a refund of sales and use taxes paid under protest. See 1999 La. Acts, No. 200,

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